Indorama Ventures

Indorama Ventures Plc (IVL)

Polyester spread to recover slightly. Industry stabilizes
Spread of PET-PTA and PTA-PX in 2H13 is likely to be stable, as spread of
worldwide polyester products has stabilized since August 2013. Only spread of
PET in Asia rose by 7.9%mom as minor factories with high production cost had
to close due to consecutive losses. Demand for downstream production of
polyester (PET bottles and clothing) has become blissful along with improving
global economy, especially in China, so polyester business is likely to recover
and stabilize. However, current main pressure is raw material (PX) in Asia cost
that would be staying high, as new Tenglong Factory with 800,000 ton/year
production capacity would delay its commercial run from May 2013 with
currently no exact opening date. Thus, spread for polyester products would not
recover very blissfully.
- 3Q13 profit to recover, thanks to MEG production and stock gain
IVL’s 3Q13 net profit is likely to improve from 2Q13 due to the following: 1) MEG
factory in US with 550,000/year capacity (7% of total production) has resumed
production after two-month planned shutdown. 2) There is stock gain at the total
of B300-450m (US$10-15m), as polyester product prices have risen along with
global crude oil price. Average 3Q13 crude oil price growth was estimated at
5%qoq, with two month of inventory days. 3) There has been no conclusion from
the insurance company about expected insurance compensation of B1bn
(US$35m), so there is no exact amount of insurance money or date to be
recognized. Overall, we maintain our 3Q13 earnings forecast. FY2013 net profit
is expected to decelerate by 13%yoy, but rise significantly by 42.7%yoy in 2014
- Share price 17% over fair value. "SELL"
IVL has blissful recovery in 2H13, as the share price has risen rapidly, over 50%
in the past month. Thus, current share price is 17% higher than the fair value,
with FY2013 28.4x PER and 1.8x PBV. However, FV2013-2014 dividend yields
are only 1.1% and 1.5% p.a. respectively. Therefore, we downgrade our
recommendation from “HOLD” to “SELL” to take profit for a short term, or switch
to other recommend stocks in petrochemical sector: TOP ([email protected]) and IRPC([email protected]).